CIMA France Event Money laundering

Speaker: Martin Nimmo, Head of Policy and Plans, CIMA

Date: Tuesday 4th March 2008

Time: 18:30

Location:

Hôtel Royal Saint-Honoré
221 r St Honoré 75001 PARIS

• Tel : 01 42 60 32 79
• Fax : 01 42 60 47 44

• Plan
• Itinéraire
• Vue aérienne
• A proximité

IFRS and IAS Summaries- English

Click below for copy of each IFRS and IAS summary in PDF format:

• Framework - Technical Summary

IFRSs:

• IFRS 1 First-time Adoption of International Financial Reporting Standards
• IFRS 2 Share-based Payment
• IFRS 3 Business Combinations
• IFRS 4 Insurance Contracts
• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
• IFRS 6 Exploration for and evaluation of Mineral Resources
• IFRS 7 Financial Instruments: Disclosures
• IFRS 8 Operating Segments

IASs:

• IAS 1 Presentation of Financial Statements
• IAS 2 Inventories
• IAS 7 Cash Flow Statements
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 10 Events After the Balance Sheet Date
• IAS 11 Construction Contracts
• IAS 12 Income Taxes
• IAS 16 Property, Plant and Equipment
• IAS 17 Leases
• IAS 18 Revenue
• IAS 19 Employee Benefits
• IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
• IAS 21 The Effects of Changes in Foreign Exchange Rates
• IAS 23 Borrowing Costs
• IAS 24 Related Party Disclosures
• IAS 26 Accounting and Reporting by Retirement Benefit Plans
• IAS 27 Consolidated and Separate Financial Statements
• IAS 28 Investments in Associates
• IAS 29 Financial Reporting in Hyperinflationary Economies
• IAS 31 Interests in Joint Ventures
• IAS 32 Financial Instruments: Presentation
• IAS 33 Earnings per Share
• IAS 34 Interim Financial Reporting
• IAS 36 Impairment of Assets
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets
• IAS 38 Intangible Assets
• IAS 39 Financial Instruments: Recognition and Measurement
• IAS 40 Investment Property
• IAS 41 Agriculture

Banking in the 21st Century

This is what we are best at… and we are incredibly bad at it!!

What are banks supposed to do best?

Frankly it is embarrassing to have to say that you "lost" several billion dollars. What when your core business is banking? Banks tend to portray a very conservative image... security, safe investments, risk management, portfolios. What is really going on?

How could it have all gone so wrong?

"Subprime" is a great scapegoat but I am convinced that the root of the problem lies much deeper.

Sure most banks have been burned badly by their self invented "Subprime" crisis, and Société Généralé managed to lose even more money thanks to lax internal controls and overconfident trading. Don’t be fooled they are not alone.

In the UK we have the Northern Rock fiasco, and another French bank, BNP Paribas has been fined recently by the FSA for sloppy internal controls. Most of these banks have been in business for a long, long time, why is it that suddenly now we are realising that all is not so rosy?

Could it be that making money is relatively easy in a bearish economy? When the bear begins to boar those banks with the shaky foundations are shaken out first. Northern Rock indeed!!

There is more than one way to rob a bank

1. Traditional: Billy the Kid, The Italian Job,
2. Cyber-crime: Hacking, teeming and lading.
3. The Third way: Bank "loses" several billion dollars.

This third way is new and very, very smart. No one even thinks to look for the winners!! They are far too busy trying to find the scapegoats.

If the banks have "lost" so much money, some lucky people somewhere must have made a fortune, why isn't anybody wondering about that?

One group of winners could be the bankers themselves. And just maybe some of this relates to the unreasonably high bonuses bankers made in 2007?

All about timing

Pump the bubble almost to bursting point, take your bonus. Retire to the suburbs, buy your Porsche. Its ok, by the time it comes crashing down it will become something that Douglas Adams famously called "somebody else's problem".

What I would really like to see is a three way analysis of the situation.

• How much money each bank has "lost".
• A grouping of “winners” and how much each group probably made.
• An analysis of where that cash is now. In property? In Porsches? Under the mattress? In the bank?

Frank Bank

I had the good fortune to have a very frank discussion with the CEO of a Wealth Management arm of a famous International Bank. Here is a brief summary of their position. (Some details have been changed to protect me).

• 15 billion dollars of managed funds.
• 150 employees across three continents.
• Ambitious growth plans.
• Very limited, from that I gathered almost non-existent, internal controls.
• One inexperienced accountant and an assistant just out of university.
• Monthly reporting is outsourced due to a knowledge gap.

Internal controls had been sacrificed at the outset to the god of growth. Now the growth is continuing at a breathtaking pace and there is an awful lot of pedalling to do for the accounting controls to catch up.

It sounds like a very similar situation, albeit on a smaller scale, to Société Générale. And I think I am beginning to see a trend here.

Banking is very much a "closed shop". Normally you can only work in a private bank if you have prior banking experience. They say that their industry is so specialised and complicated that they only want people who understand the system. This argument has been more than slightly tarnished by recent events. You only have to look at the results to see that this approach is one of the roots of the banking crisis. It encourages "group think" and stifles change. Change is what is needed now.

• Debits and credits are no different in a bank to any other business.
• Futures and Derivatives are like taking a punt on a two horse race. (And you'd stop after losing your first billion).

Maybe the reason for Bankings "closed shop" approach is a collective fear that a fresh look at their operations might uncover even more bad news. They really can't take the risk.

I would really appreciate all your comments on this subject.

Unravelling at Société Générale

DAY by day the French have been watching the unfolding saga at Société Générale with a mix of horror and intrigue. This week has brought several twists to the tale of how a single trader, Jérôme Kerviel, whose desk was only authorised to take positions of up to €125m ($183m), could have lost the bank €4.9 billion. Each leaves managers at the French bank looking even more negligent. Read original article.

On February 4th Christine Lagarde, the French finance minister, published her hastily produced report into the affair. Two elements stand out. First, it says that SocGen managers acted in a “professional manner” when they wound up the bank’s unhedged exposure, which had reached €50 billion, in a tumbling stockmarket between January 21st and 23rd. Their actions, it said, did not push the markets lower: on no day did the volumes the bank offloaded go much above 8% of overall activity. And the managers correctly informed the financial authorities concerned.

When it comes to the bank’s control over its own staff, the report is a lot less forgiving. Daniel Bouton, SocGen’s boss, has argued that Mr Kerviel could easily conceal the vast positions he took because he had previously worked in the back office, so was familiar with the system of controls. Not good enough, says Ms Lagarde: the internal controls at the bank “did not function as they should have and those that did function were not always properly followed up”. The report shows that in November 2007, Eurex, a clearing house, raised questions about the trades. And it confirms that Mr Kerviel had started to make trades without his superiors’ approval back in 2005.

Ms Lagarde’s report identified no fewer than eight ways in which SocGen should have kept a tighter watch, including a more sceptical attitude to “atypical behaviour”, such as not taking any holiday. When asked by the parliamentary finance committee this week how the bank failed to detect this fraud, Christian Noyer, governor of the Bank of France, replied that it was indeed “unbelievable”. The governor went on: “Frankly, I can’t explain it.”

To back up this picture of carelessness, Mr Kerviel himself spoke out for the first time this week. He said that he was operating alone, admitted to having made fictitious entries to cover his tracks, and argued, with sublime understatement, that he “got carried away”. Although he acknowledged his part of the blame, he said that he was being made a “scapegoat” by the bank. Reports in the French press depict a young trader, from a small town in Brittany, keen to prove himself in a trading room dominated by members of France’s educational elite.

According to testimony to the financial police, leaked to Le Monde, Mr Kerviel said that the techniques he used to cover his tracks “are not sophisticated at all”, and that he was convinced his superiors knew what he was up to, as he had received “several questioning emails” in 2007. By the end of that year, Mr Kerviel’s unauthorised positions were €1.4 billion in profit; it was only in 2008 that his trades turned negative. “As long as we earn and it doesn’t show too much,” he said, “nobody says anything.”

Website of the Week

The British Business Angels Association (BBAA) is the new National Trade Association for the UK's Business Angel Networks and its Associates and Affiliates. The primary role of the BBAA is to promote business angel finance as a normal way for new and high growth potential businesses to
fund their risk capital requirements.

Maria Shriver backs Barack Obama

From the Huffington Post

Hat tip to Penelope Trunk who explains quite clearly why this is an important moment for America.

I had never heard of Maria Shriver but I am well impressed, where did she learn to give speeches like this? It looked impromptu but I am sure she had prepared for it. I guess that is the art of giving a truly motivational speech. Watch the clip here and tell me what you think.






In a dramatic moment at UCLA's Pauley Pavilion, California First Lady Maria Shriver just strode out onto a stage that had already seen its share of celebrities -- Oprah Winfrey and Stevie Wonder among them -- and announced that she was joining the Kennedy half of the family backing Barack Obama, reports our colleague Mark Z. Barabak, who is there.

More details will be posted shortly and in tomorrow's print edition, but Shriver reportedly was waiting backstage wavering over whether she should make her support public, and then finally strode out on stage. Her husband, Republican Gov. Arnold Schwarzenegger, earlier this week announced his endorsement for Sen. John McCain.

The Kennedy family has split over the two top Democratic contenders, with Ted Kennedy joined by Caroline Kennedy Schlossberg -- daughter of his brother John F. Kennedy -- and his son, U.S. Rep. Patrick Kennedy, all going with Obama. Ethel Kennedy, widow of Robert F. Kennedy, also went with the Illinois senator.

But Hillary Rodham Clinton picked up the support of three of Robert and Ethel's children -- Kathleen Kennedy Townsend, Kerry Kennedy and Robert F. Kennedy Jr.

Keep reading

Société Générale

Jan 31st 2008
From The Economist print edition

The humiliated French bank has plenty more explaining to do before putting its rogue-trader scandal behind it

AN OLD line of Hank Paulson's has been dusted off since news broke of a €4.9 billion ($7.2 billion) trading loss at Société Générale, France's second-largest bank. “We will never eliminate people doing bad things,” the former head of Goldman Sachs, now America's treasury secretary, once said. “In a town of 20,000 people, there's a jail.” The question now being asked of SocGen is: shouldn't there also be a police force?

In fact, SocGen has plenty of internal cops at its high-security headquarters in the La Défense enclave of Paris. The bank's annual report for 2006 devotes 26 reassuring pages to its risk-management practices; more than 2,000 staff worked in the function that year, and lots more bodies were added in 2007. Yet none of them stopped Jérôme Kerviel, the trader accused of taking enormous unauthorised bets, from building an unhedged €50 billion exposure to European futures markets (Mr Kerviel reportedly alleges that his supervisors were aware of his activities).

On January 28th Mr Kerviel was placed under formal investigation for abuse of trust, breaching computer security and falsifying documents. Two days later Daniel Bouton, SocGen's chairman and co-chief executive, survived a board meeting to consider his handling of the affair. He was lucky. Holes have not only appeared in the bank's accounts; its initial version of events is also looking threadbare.

Mr Bouton's description of Mr Kerviel as having “an extraordinary talent for dissimulation” certainly looks less convincing as more details emerge. Although Mr Kerviel was properly found out on January 18th, he had tripped alarms inside the bank well before then. “When challenged, he was clever enough to say, for example, that he had made a mistake,” says Jean-Pierre Mustier, the head of SocGen's investment-banking arm. Clever, indeed. Rival banks, admittedly fortified by anonymity, say that their traders would not have been able to keep getting away with that kind of explanation. Some people wonder if SocGen would have blown the whistle at all had the bets been profitable. Outsiders raised other suspicions. Eurex, Europe's largest futures exchange, contacted SocGen about oddities in trading patterns in late 2007, which the Paris prosecutor says referred to Mr Kerviel's positions. The bank says that Eurex's questions were rather technical in nature and that it had responded to them.

The sheer size of Mr Kerviel's exposure, the losses on which tripled as SocGen frenetically unwound its positions between January 21st and 23rd, has caused most bafflement among veterans of the futures markets. Two big blind spots saved him from detection. The first was the bank's focus on traders' net exposure, the difference between the portfolios that are being arbitraged. Mr Kerviel did not have a defined gross-exposure limit. By creating a fictitious portfolio of trades that appeared to balance those he was really making, his net exposure stayed within set ranges and he remained below the radar.

Why didn't the margin calls on Mr Kerviel's real trades (likely to have been of the order of €2.5 billion on a €50 billion position) trigger alarms? This was the second blind spot. According to Mr Mustier, margin data from Eurex showed only consolidated positions. These positions were “not a different order of magnitude” from the volumes expected of a big investment bank. “One lesson of this is that it is important to see what is attributable to each trader,” he says. In truth, that should not have been too difficult: as well as consolidated figures, Eurex says it does already send data that tie margins to specific traders on a daily basis.

Mr Kerviel's credentials as a supervillain look less impressive in other ways too. His fictitious portfolio did not just comprise over-the-counter transactions with big banks, where agreed credit limits meant he could avoid margin calls. Embarrassingly, it also included trades with other parts of SocGen. Access to risk-control codes did not necessarily require the skills of a seasoned hacker; the bank says he may simply have offered to input details of trades on behalf of middle-office people when there was lots of activity on the trading floor. Some control procedures appear to have been predictable, being timed to take place shortly before the settlement date of futures contracts. Mr Kerviel's limited holidays and late nights should also have raised red flags.

Despite the resounding support of the board, Mr Bouton has been severely weakened. Nicolas Sarkozy, the French president, has made pointed calls for SocGen executives to face “consequences” (see article). The chairman may not survive the findings of an internal investigation into the loss. The future of the bank itself is also in doubt. Its shares have slumped since the start of the year (see chart) and its credibility has been shredded, not just by the trading loss but also by write-downs of subprime-related investments. Analysts are trying to work out who might be in a position to buy the bank; one option is a joint approach by two other French institutions, BNP Paribas and Crédit Agricole, with BNP taking SocGen's retail operations and Crédit Agricole the investment bank.

The question now is whether the flaws that seem to have torpedoed SocGen are endemic to other banks. There are some reasons to think not. SocGen's management was being criticised for poor standards of disclosure well before news of the Kerviel affair broke: “They had not imposed the important discipline of transparency on themselves,” says John Raymond of CreditSights, a research firm. In common with other French banks, SocGen was also thought by many to take an overly mathematical approach to risk. “‘It may work in practice but does it work in theory?' is the stereotype of a French bank,” says one industry consultant. More obvious visual cues—beads of sweat running down Mr Kerviel's face, say—may get overlooked in this type of environment. And the sheer size of the loss partly reflects the bank's pre-eminent position in the equity-derivatives field.

But there is no cause for complacency. Most observers, regulators included, concede that banks can do little to stop determined individuals from sidling around controls, at least for a while.

And in the midst of the subprime crisis, the SocGen saga resonates for other reasons too. One concerns the status of risk managers within banks. Mr Kerviel is alleged to have outfoxed rather than pulled rank on risk managers, but swaggering traders can find it all too easy to ignore the concerns of meek back-office types. Many Wall Street banks have responded to the meltdown in structured credit by strengthening their risk teams. The SocGen loss will accelerate that trend.

Events at SocGen will also fuel an old debate about bankers' pay—Mr Kerviel was reportedly motivated by his desire to win a higher bonus—and a newer one about the ability of banks to keep pace with the dizzying growth of derivatives markets. It will also reinforce concerns about how “fat-tail”, or extreme, risks correlate: might SocGen's risk managers have been too distracted by its subprime woes to keep watch on the futures desk?

The internet in China and how it is used

In the West online activities have transformed existing businesses and created new ones; in China, by contrast, the internet fills gaps and provides what is unavailable elsewhere, particularly for young people. More than 70% of Chinese internet users are under 30, precisely the opposite of America, and there is enormous pent-up demand for entertainment, amusement and social interaction, says Richard Ji, an analyst at Morgan Stanley. Rich rewards await those entrepreneurial internet companies able to meet that demand and establish themselves in the market: operating margins for leading internet firms are 28% in China, compared with 15% in America. Read original article.

So what is the internet used for in China? Its most obvious use is to distribute free pirated films, television shows and music. Even though China's censors do an excellent job of restricting access to content that might cause political problems, they are strangely unable to stem the flow of pirated foreign media. On December 30th an appeals court in Beijing ruled in favour of Baidu, China's leading search engine, which had been accused by the world's big record companies of copyright violation by providing links to pirated music files. Even so, piracy is starting to worry the government, not least because the availability of free foreign content is holding back the development of the domestic media industry. But for the time being, the free-for-all continues.

When it comes to making money online, the biggest market involves the delivery of mobile-internet content to mobile phones. With over half a billion mobile-phone users, China has more subscribers than America, Japan, Germany and Britain combined, and more than half of them use their phones to buy ringtones, jokes and pictures from mobile-internet portals such as KongZhong and Tom Online. Each download costs a few cents, most of which goes to the portal, but the mobile operators then make money as subscribers send jokes and pictures to each other. It all sounds trivial, but a few cents here and there multiplied by hundreds of millions of users soon add up. The ringtone from a hit song, “Mice Love Rice”, generated over $10m in sales in 2005, for example.

Another big field is online multiplayer games, which have become so popular that the government has started to worry about their impact on adults' productivity and children's education. Import restrictions and fear of piracy mean that the big foreign console-makers—Sony, Nintendo and Microsoft—have not made much headway in China. Instead, a different model has emerged, based around PC games played online. Generally the game itself is given away, so piracy is not a problem, but players pay a subscription to play, and may also buy in-game add-ons such as accessories for their characters. Big providers such as NetEase and Shanda have millions of customers for games such as “Fantasy Westward Journey”, a cartoon game for children, and “World of Legend”, for teenagers and adults.

Although there are tight constraints on the provision of hard news, internet sites such as Sina and Sohu provide a steady supply of gossip, features, dabs of propaganda and slightly salacious stories and photos, and are constantly testing the boundaries of what is permissible. Video of America's professional basketball league and English football games is also popular, and can be packaged with streaming advertisements, another emerging business in China.

The most dynamic area, and the hardest for outsiders to understand, is that of online communities, many of which are run by a company named Tencent. Its site offers an instant-messaging service and a MySpace-like social networking site, among other things. In each case the basic services are free, but users pay for add-ons (such as new backgrounds for their home-pages or more storage space). Often, says Mr Ji, the members of these communities are people who, because of the single-child policy, have no siblings and are searching for virtual friendships. For them and for many users in China, the internet is not truly a worldwide web: it is only as wide as China. But China's internet community is evidently a world unto itself.

Rankings for Distance-learning MBAs

From Economist.com

British universities dominate the Economist Intelligence Unit's ranking of top distance-learning MBA programmes

The University of Florida's Warrington School of Business tops the Economist Intelligence Unit's ranking of distance-learning MBA programmes. Florida's students are especially impressed with the quality of the school's distance-learning materials, the programme's value for money and their sense of connection to the school. Spain's IE Business School ranks second, with Britain's Warwick University third.

Distance-learning MBAs are becoming an increasingly important sector of business education, allowing students from around the world to earn degrees from top-quality schools without having to change jobs or move abroad—often at a fraction of the cost of a full-time programme. For these very reasons they are also becoming more popular with employers.

The idea that distance-learning programmes are in some way the “poor relation” of the MBA, particularly compared with full-time programmes, is no longer tenable. Most distance-learning degrees are seen as entirely legitimate, having achieved the same rigorous academic standards as traditional methods of instruction. Because the corporate world has largely embraced these programmes for its own employees, bosses also accept them as an important qualification for new recruits.

However, Bill Ridgers, editor of Which MBA?, says that studying for an MBA by distance-learning requires special resolve: "Despite business schools making increasing efforts to involve students, the fact that students study on their own for much of the time—and that programmes can take three years or sometimes much longer to complete—means a lot of self-motivation is needed to get through it."

Full report and methodology